By Graham Summers, MBA

It’s all dealer video games at the moment.

The inventory market is closed tomorrow for Thanksgiving. It can additionally shut early on Friday November twenty fifth at 1PM. As one can think about, most of Wall Road has already left for the vacations.

Which means buying and selling quantity will likely be extraordinarily gentle. And that implies that these few merchants/funds who’re lively could have a better time transferring the market.

As I write this, the S&P 500 is inside spitting distance of its 200-day transferring common. There’s little doubt in my thoughts that shares will make a run for that line someday over the vacation.

Nevertheless, that may be a short-term difficulty. The longer-term difficulty is that the Treasury market is telling us a extreme recession is coming.

The Treasury is comprised of quite a few bonds with totally different maturation intervals. They’re:

Treasury Invoice Maturation Intervals:

4 Weeks

13 Weeks

26 Weeks

52 Weeks

Treasury Observe Maturation Intervals

2 Years

3 Years

5 Years

7 Years

10 Years

Treasury Bond Maturation Intervals

20 Years

30 Years

If you plot the yield on all of those bonds, you get the “yield curve.” And the distinction in yield between varied bonds on this curve is without doubt one of the most correct predictors of recession.

Particularly, the distinction between the yield on the 10-12 months U.S. Treasury and the yield on the 3-month U.S. Treasury. Anytime this distinction turns into unfavorable (that means the 3-month yield is definitely increased than the 10-year yield) this means a recession is about to hit.

I’ve illustrated this within the chart beneath.  Anytime the black line falls beneath the crimson line, the 10-year 3-month yield curve is “inverted.” This was the case in 1989, 2001, 2007, and 2019: all of these preceded recessions.

It’s occurring once more now. And as you’ll be able to see, this metric is MORE unfavorable at the moment than it was earlier than the COVID-19 crash in addition to the Nice Monetary Disaster.

Put merely, the yield curve of the Treasury market is predicting a extreme recession within the close to future, probably the beginning of 2023.

That is going to drive shares to new lows. I’ll clarify why in Friday’s article. Till then… know this: it’s extremely probably {that a} recession goes to set off a significant crash in shares. It’s not a query of “if,” it’s a query of “when.”

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